The world is pumping more oil than it burns for the first time since the Iran war began. Diesel has not got the message

For the first time since US and Israeli strikes on Iran began the war on 28 February, the world is producing more oil than it uses.

The International Energy Agency said in its monthly oil market report on Friday that global supply rose by 2.3 million barrels a day in October to 105.4 million, overtaking demand. Observed stockpiles rose by 52 million barrels, the first increase since June. The agency said the market was “showing tentative signs of rebalancing” and expects a surplus in the last three months of 2026 and a larger one next year.

What changed?

The Gulf is shipping again. Gulf exports, not counting Oman, reached 18.4 million barrels a day in October. That is still 26 per cent below pre-war levels, but crude flows alone are back to 82 per cent. The agency raised its supply estimate for the final quarter of 2026 by 3.3 million barrels a day because exports recovered faster than it expected.

Prices have followed. The benchmark North Sea crude price fell 32 per cent, from about US$136 a barrel in early October to about US$93, the agency said, though that is still US$22 above where it was before the war. Brent traded at about US$96 a barrel on Friday afternoon, Gulf time.

Why is diesel still so expensive?

Because crude is only half the story. Refined fuel and LPG exports from the Gulf are still running at about half their pre-war level, and attacks on Russian energy infrastructure have cut Russia’s diesel exports. European diesel prices have fallen 11 per cent but remain about 77 per cent above pre-war levels, and US diesel prices are at records. The agency says it is speeding up the release of emergency diesel stocks to bridge the gap.

Global refineries also cut back. Runs fell to a seasonal low of 81.3 million barrels a day in October, and record freight costs hit Asian refiners hardest.

What does it mean for Australia?

Australia imports most of its fuel, much of it refined in Asia from Gulf crude, and diesel runs its trucks, farms and mines. A crude surplus takes pressure off prices at the bowser over time, but the IEA’s figures suggest the relief will reach petrol before it reaches diesel, because refined fuel supply is recovering more slowly than crude.

How big is the damage?

The war has drained 462 million barrels from global stocks since February, the agency said. Stocks held on land are at their lowest since at least 2016, and stocks in the developed OECD economies fell by another 47 million barrels in October even as the global total rose, because much of the new oil is still at sea.

Demand has also taken a hit. The agency expects world oil use to fall by 2.7 million barrels a day this year to 102.3 million, as high prices push people and businesses to use less and speed up electrification and fuel efficiency.

What would change it?

Ships. The IEA called maritime security “pivotal to a sustained recovery”. Attacks on tankers have not stopped: at least 10 ships were hit in the first 10 days of November after 37 attacks in October, the highest monthly total of the war, according to the Washington Institute for Near East Policy. On Friday, Iran’s Revolutionary Guards claimed an LNG tanker had hit a mine and exploded near the Strait of Hormuz, a claim that has not been independently confirmed.